The US dollar exchange rate to the Brazilian real had a significant impact in 2020 and this directly affected cigars and cigarillos, which heavily depend on imports. Another important aspect is that without travelling and the higher US dollar rate, much of what is often consumed via duty-free or is personally imported disappeared, making product availability scarce.
Another critical impact on the category is how COVID-19 hit channel dynamics. These products due to their positioning and perception are mainly sold via tobacco specialists located in malls or at cigar clubs.
For several years, high tax rates have negatively impacted the category, increasing the cost of importation and in some cases driving the slow disappearance of brands and some products overall. Of particular note are cigarillos, which according to Brazilian legislation are taxed the same as cigarettes, and more tightly than cigars, making the product harder to find, with importers ceasing interest in this subcategory due to the difficulty of making a profit.
For the second time in less than a year the government talked about a sin tax as a viable way to compensate for the loss of revenue during 2020 as well as the benefits being given to low-income families. This means that higher costs for tobacco, alcoholic and added-sugar products are likely to come and impact a category that already faces great challenges and constant loss of volumes and higher prices.
One positive aspect that can be expected is the indirect effects of the rise in popularity of whiskies among Brazilians. This was a trend identified in recent years that gained relevance in 2020 with the growth of disposable income among upper class families.
JTI Brazil during 2020 decided to increase its investment in fine cut cigarettes, known locally as “cigarro de palha” with the intention of exploring the trends for growing popularity of artisanal products and “Proudly Local” consumption. The company will bring the popular Natural American Spirit for the national market, and the category is largely dominated by smaller local brands.
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This report originates from Passport, our Cigars, Cigarillos and Smoking Tobacco research and analysis database.
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